Gen Z Americans are far more optimistic about when they'll retire compared to their millennial or Gen X counterparts.
One in five members of Generation Z, those born after 1997, expect they will be able to stop working before 50 and about a quarter are hoping to retire in their 50s, according to a recent FlexJobs survey.
To compare, only 14% of millennials (those born between 1981 and 1996, according to Pew Research) and 1% of Gen Xers (those born between 1965 and 1980) think they'll retire before 50. About 20% of millennials and 14% of Gen Xers believe they will retire in their 50s.
Of the more than 4,600 FlexJobs survey respondents, only 298 were Gen Z, but 1,480 and 1,860 were millennials and Gen X, respectively. The remaining 970 include baby boomers and the silent generation.
The average age of retirement is 64.6 for men and 62.3 for women, according to the Center for Retirement Research at Boston College.
Gen Z's confidence should be taken with a grain of salt, says Mark La Spisa, a certified financial planner and president of Vermillion Financial: "I think most 20-year-olds are clueless" about what it takes to retire.
However, the optimism might reflect the attitude of those with more foresight, he says. "Most people in their 20s, one of the last things they are thinking about is retirement, but for the ones that are, they are very proactive," he says. "They are very excited about getting ahead of the curve."
Here are four smart money moves that can make retiring in or before your 50s more likely, according to experts.
The rule of thumb is that you want an annual retirement income that's about 75% of your pre-retirement income, according to experts. For a 25-year-old currently earning a $50,000 salary, that would equate to a retirement savings goal of about $1.6 million, according to calculations from Grow. Try Grow's retirement calculator to run your own numbers.
Achieving that goal could be easier if you start early. The longer you leave your money to grow, the more money you can earn from compounding interest. Compound interest is the interest you earn on your money, plus the interest it's already accrued.
In fact, Gen Zers should be optimistic about their early retirement prospects if they can start early, says Kevin Mahoney, a certified financial planner and founder of Illumint in Washington, D.C. "When people are that young with that long of a time horizon, if retiring at 50 is something important to them, more than 20% of people can make that happen," he says.
When you start early, it doesn't always take substantial contributions, depending on your goal. If a 20-year-old wants to become a millionaire by the time they are 50, they could achieve that by investing just $460 with every biweekly paycheck, or about $12,000 per year, according to Grow's calculations. That assumes 6% annual growth.
"If you can take advantage of time by saving prudently and investing responsibly at a young age, the benefits of compounding really does make big difference compared to someone who doesn't start until their 30s or their 40s," Mahoney says.
When you're juggling competing financial goals, such as paying down student loans or saving for a house, you may not be able to focus all your funds on retirement.
"I think it's valuable and the best use of people's time and energy to focus on what they can control," Mahoney says. "For most people that is saving consistently and trying to boost those savings incrementally over time."
People who do this will not only keep up with investing, but also develop "strong savings habits," he says. "If you can stick to a baseline and increase it over time, it won't be as painful as going from saving $1,000 a year to saving $5,000 a year."
Steadily increasing your contributions over time can yield results that are pretty close to those you'd get starting off with and steadily making bigger contributions.
In order to make early retirement feasible, you also need to eliminate unnecessary expenses, La Spisa says. This could help you max out your retirement accounts regardless of how much you are making.
More than 40% of supersavers, those who max out their 401(k) accounts or come close to it, earn less than $100,000, according to a 2020 Principal report. They manage their high savings rate by driving an older car, living in modest homes, and making other decisions that keep their costs of living low.
"People who are trying to retire early are not going to be driving the latest and greatest vehicles," La Spisa says. If you need a car, buy a used one and hang onto it for 10 years or more.
It's equally important to track spending on little things like subscriptions services and takeout food. "It's all those little $15, $20, $25 expenses a month that keep adding up," La Spisa says.
Many people in the FIRE movement recommend saving 25% to 70% of your annual income. La Spisa suggests that to retire early, you need to invest at least 20% of of your income.
It would be easier to do this if you have multiple income streams, or a side hustle. This can involve capitalizing on a skill you already have, or renting out a spare bedroom as an Airbnb. Whatever money you earn from these ventures can help you boost your retirement contributions.
It's also smart to invest in yourself. Most of La Spisa's clients who are siphoning off large portions of their paycheck to retirement accounts also took steps to increase their own value, he says. "Whether it's a degree or certificate, it doesn't matter," he says. "The more education you get or the more experience you get, the more valuable you become."
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"If you're saving aggressively, you're not making the most of your 20s and 30s," Mahoney says. "I think most people would agree that there needs to be balance between your objective and the life you want to live."
Weigh the benefits and trade-offs of each financial move on the path to early retirement, La Spisa says.
"When people focus on one task, what does that do to the rest of their world," he says. "Are they giving up experiences? Is it healthy? If they are able to save and the only price they are paying is something like driving a used car or living in a smaller house, but they are still living and enjoying their family and friends, there's nothing wrong with it."
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